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BREXIT – Where does the UK Financial Sector go from Here?

In the wake of the Brexit vote that stunned Europe recently, the financial services industry is bracing itself for some short term economic and market volatility in reaction to the vote. The Brexit vote has resulted in a series of political upheavals here in the UK and these are likely to continue for quite some time with the summer recess due before the election of a new Conservative party leader (which is necessary as David Cameron announced his resignation on the morning that the Brexit result was confirmed).

The UK financial sector, which is held in high regard across the world, has a well-tested regulatory structure and resilient systems, thanks in no small measure to the work done by the industry and its regulators in the post-financial crisis years.  It seems that the financial sector is in a good position to weather storms and be in a prime position to advise both policy makers and politicians in negotiating the UK’s exit from the European Union.

The financial infrastructure in the UK with its trusted legal system and regulatory status puts it in a fairly optimistic position for continuing to prosper outside of the EU but with open access to EU markets no longer guaranteed, we will be facing significant challenges in the coming years.  There are likely to be difficulties when it comes to other financial institutions’ ability to use the UK as a gateway to Europe in future which is likely to affect the UK as a whole.

In the past, several of the most senior regulatory and policy roles at a global level have been held by British nationals which means that we have a vital influence in global markets, along with an enhanced level of insights and understanding of global finance.  The Brexit vote is also likely to affect inward investment to the UK and a recent survey of inward investors revealed some worrying trends.

A massive 72% of financial services companies who took part in the survey said that access to the Single market was a vital issue for them while 43% revealed that if the UK were to leave the EU but still retain access to the Single Market on less favourable terms, it would make Britain a less attractive country to invest in.  Nearly three quarters (73%) of respondents identified fintech as the primary area for investment, largely due to our financial services’ history of adaptability and innovation which have been key issues in the success of our economy.  The UK presently leads the way in fintech, but this is something that may change unless we manage to safeguard our market-leading position in this area.

Leaders of all the major industries in the UK will need to assess their sector’s competitive position in the new political landscape over the coming months and this is just as true for the financial sector.  We will need to maintain our confidence as an industry and take the lessons we learned during the financial crisis to negotiate our place in the changing financial landscape that we now face.